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In this April 20, 2011 photo an Exxon gas station near the Watergate complex in Washington, DC shows gas prices at $5 USD per gallon. Instabillity in the Middle East and oil speculation have kept gas prices rising steadily across the US. (Image credit: AFP/Getty Images via @daylife)

Crude oil is arguably the most important commodity in the world today. All eyes are on crude oil prices and its dynamics because almost no country can satisfy its domestic oil demand independently and because countries rely heavily on oil for industrial and retail uses.

Iran’s efforts to enrich nuclear fuel hasn’t been gone over well with its neighbors or western countries, especially in the U.S. As a result, several countries led by Europe and the U.S. have leveled sanctions against Iranian oil to paralyze the Iranian economy. U.S. President Barack Obama has been discussing ways to meet the shortfall from Iranian oil, such as getting assurances from Saudi Arabia and other oil producing countries. This has cleared the way for the U.S. to raise the sanctions against Iran oil imports.

Amid this political upheaval, crude oil prices have increased drastically on speculation of declining supply. While such high oil prices are unsustainable without impacting demand, in near future we do not expect prices to settle down as the global political climate relating to crude oil remains unnerving. IMF President Christine Lagarde has also expressed concerns and has warned of a 20-30% jump in crude oil prices. While this could impact overall economic growth, this is a great opportunity for oil and gas as well as oil services companies in the U.S.

Oil and Gas Production Companies Like Exxon Mobil

For oil and gas companies, this environment creates opportunities to ramp up the production and try to satisfy the domestic U.S. demand and grow exports. We believe that the average oil prices and production volumes will be impacted. Below is the realized sales price for oil and natural gas liquids for Exxon which you can modify to see the impact on its estimated fair value.

Rig Services Providers Like Baker Hughes And Halliburton

These companies will benefit from the enhanced production requirements, and hence, be able to claim higher realizations per rig. Below you can see how higher realizations per rig can impact the stock price estimate for Baker Hughes.